Richhild Moessner (Bank for International Settlements) William R. Nelson (Federal Reserve Board)
Abstract
Several central bankers have expressed concern that providing forecasts of future policy rates may impair financial-market functioning.We look for evidence of such impairment by examining the behavior of financial markets in the United States, the euro area, and New Zealand in light of the communication strategies of the central banks. While we find evidence that central bank policy rate forecasts influence market prices in New Zealand, we find no evidence that market participants in the three regions systematically overweight policy rate guidance or that they do not appreciate the uncertainty and conditionality of it. The results suggest that the risk of impairing market functioning is not a strong argument against central banks’ provision of policy rate guidance or forecasts.
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Volume (Year): 4 (2008) Issue (Month): 4 (December) Pages: 193-226 Download reference. The following formats are available: HTML
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Find related papers by JEL classification: E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies